ECB

ECJ

Ecofin

When the Council of Ministers
meets on economic affairs it comprises the economic and finance ministers
of the EU and is known as Ecofin.
Ecofin's authority as the supreme arbiter
of the Union's financial policy has, however, been to some degree challenged
since 1999 with the creation of a smaller committee, Euro-X,
drawn exclusively from member states participating in the single
currency.

Economic and Monetary Union

Economic and Social Committee
(ESC)

The EU's Economic
and Social Committee, or EcoSoc, has 222 members and 222 substitutes,
nominated by the member states and divided into three groups - employers,
trade unionists and other interests. On issues such as workers' rights,
the first two groups usually vote against each other, leaving the third
group (consumers, academics, farmers, the self-employed and so forth)
to decide the outcome. EcoSoc is a perfect work of corporatist bureaucracy,
with its rotating presidency, its tripartite
managing bureau, its working groups, its draft reports and its specialist
sections. In 1997 it was on the receiving end of a stinging rebuke from
the Court of Auditors for abuse
of expense accounts.

EcoSoc must, under the Treaty of Rome,
be consulted on various issues, though there is no obligation on the
Commission
or the Council to take its advice. It may also offer opinions (and minority
'contrary opinions') on any other subject on which its members wish
to pronounce. The idea of abolishing EcoSoc was often canvassed until
the Maastricht Treaty surprisingly
bolstered it by attempting to graft on to it the newly created Committee
of the Regions, with which it shares certain services in Brussels.

ECSC

ECU (European Currency Unit)

The now defunct ECU was
a transitional artificial currency which existed from 1981 until it
was replaced by the euro at the beginning of 1999. Its predecessor,
the European Unit of Account (EUA) was a mere book-keeping device to
avoid expressing EC statistics (including the budget)
in dollars or in D-Marks. Shortly after the introduction of the European
Monetary System in 1979 the ECU
superseded the EUA and assumed some embryonic characteristics of a real
currency. It was, for example, occasionally used as a denominator for
bank deposits, travellers cheques and international money and bond market
transactions. It was not, however, legal tender, nor was it available
in the form of paper or coin. Its value was derived from aggregating
fractions of the EC's national currencies, each currency's contribution
to the whole being weighted according to the individual member state's
GDP, adjusted for its share of intra-Community trade. The composition
of this ECU 'basket' was
fixed in 1993 to eliminate at least one variable in the run-up to the
introduction of the single currency.

The currencies of all the existing EU
member states formed part of the ECU
'basket', regardless of whether they also participated in the Exchange
Rate Mechanism or would be absorbed into the single
currency. The 'basket' therefore included the British pound, the
Danish krone and the Greek drachma. On the other hand, the currencies
of the countries that did not join the EU
until 1995 (Austria, Finland
and Sweden) were excluded, even though they
would all shortly be converted into euros.

The Maastricht Treaty provided
that the ECU would become
the new European single currency
when it was finally launched. In 1995, however, the European
Council agreed to abandon the name in favour of the euro, in deference
to German concern that the ECU
would not be credible, given its track record of repeated devaluation
occasioned by the weakness of several of its components, notably the
lira, the peseta, the escudo and the drachma. So was lost the opportunity
to resurrect a romantic old name, for the écu had been an ancient
French coin. In January 1999 the ECU
was converted to the euro on a 1-for-1 basis, whereupon it vanished
for ever.

Education

The Maastricht Treaty encourages
the Community to 'develop the European
dimension in education'. Apart from Directives
aimed at mutual recognition of
professional qualifications (essentially a freedom of movement right),
EU policy has taken the form of
community-funded voluntary programmes under the umbrella name of Socrates
for education and Leonardo for vocational
training. The best known of these are ERASMUS,
the scheme for exchanges of university students, and Lingua for foreign
language learning.

EEA

EEC (1)

EEC (2)

The initials EEC
are still occasionally used to identify Articles in the Treaty establishing
the European (Economic) Community, better known as the Treaty of Rome.
Thus 'Article 33 EEC'
refers to the objectives of the CAP.
The modern form is 'Article 33 EC'.

EIB

Elysée Treaty

EMI

Employment

The EU's policy on employment
goes little further than monitoring it, regulating some of its aspects
and expressing concern that it is not in more plentiful supply. There
are policies on vocational training, regional aid (through the structural
funds) and hours of employment (through
the Working Time Directive).
In addition, the Social Chapter of
the Maastricht Treaty committed
the signatories to measures on workplace conditions, while the Treaty
of Rome proclaims the objective of a 'high level of employment'.
The Commission
produces White Papers on employment
and the Council of Ministers
calls summit meetings on the subject, where it 'launches initiatives'
and agonises over the contrast between the success of the USA
in creating 25 million new jobs since 1980 and the EU's
chronic unemployment, running at some 10% of the working population
at the turn of the century. The culmination of much fruitless discussion
was the formulation of an Employment
Chapter in the 1997 Treaty of Amsterdam.
This, however, amounted only to phrase-making, since there is within
the EU no consensus on the appropriate
policy response to the problem.

France essentially casts itself as the
opponent of neo-liberalism, often advocating
public-sector job-creation schemes and harmonisation
of tax and social policy, so as to
deny competitive advantage to less costly countries. At the other extreme,
since Margaret Thatcher's
time the UK has advocated privatisation,
deregulation, low taxes and flexible labour markets. Germany
mistrusts the spending of taxpayers' money on artificial employment
but has long regarded statutory job protection and consensual employer-union
relations as central to its social
market economy. A 'third way', pursued
by The Netherlands, has been successful
in reducing nominal unemployment through voluntarily negotiated wage
restraint, reduced hours and early retirement, albeit at the cost of
falling real wages and disguised joblessness in the form of widespread
disability and sickness leave.

The overall European verdict on employment
strategies is less clear than it would have been in the 1980s and early
1990s. Then the 'Rhine model' appeared
over the years to have outperformed the Anglo-Saxon model, at least
as practised by the UK. But there
is growing agreement that the problem of joblessness is of structural
origin. Thus when Prime Minister Tony Blair
announced in 1997 that the UK would
renounce its opt-out from the Social
Chapter, he spoke from strength in calling for labour market reform
throughout the EU, for the economy
that he had inherited from the Conservatives was among the most effective
in Europe, with unemployment (doubtless
helped by cyclical factors) running at half the EU
average.

Blair's repeated subsequent appeals
for a free market approach to improve competitiveness met with a cool
response in the capitals of Europe. Beneath
the surface, however, business has been more flexible than governments,
and there is less rigidity in Continental employment
practices than is often assumed. France
regulates lay-offs, enforcing consultation with works councils, but
although severance is expensive and slow the courts rarely block redundancies.
To avoid anti-dismissal laws in Spain and
Germany - and high social security costs
in several countries - there has been a marked increase in part-time
and short-term employment throughout
the EU. In 1998, for example, over
one-third of all jobs in Spain were filled
by temporary workers, and nearly two-fifths of employment
in The Netherlands was part-time.

'Empty chair' crisis

In July 1965 President Charles de
Gaulle ordered a French boycott of the Council
of Ministers, withdrew France's permanent
representative to the Community and
instructed the Gaullists to absent themselves from the European
Parliament. This 'empty chair' policy was occasioned by the ending
of a transition period in the Common
Market, after which a range of decisions, previously requiring unanimity,
would be taken by qualified
majority voting. De Gaulle,
who in 1963 had unilaterally vetoed the UK's
application to join the EEC,
had already been fighting with the Commission
president, Walter Hallstein,
over the growing power of the bureaucracy in Brussels. The last straw
was Hallstein's supranational
zeal - in particular, his proposals to make the
Community financially self-sufficient, to extend the budgetary powers
of the Parliament and to revise the financing of the CAP.
The prospect of being outvoted on such matters was anathema to de
Gaulle; moreover, he had a French presidential election to fight
in December (he won narrowly from the pro-EEC
François Mitterrand).
The dispute paralysed the Community
for six months and was not resolved until January 1966, through the
'Luxembourg Compromise', which
essentially condoned the French position and restored the unanimity
principle as the ultimate recourse to protect national interests, albeit
recognising that this constituted a breach of the Treaty
of Rome.

EMS

EMU (Economic and Monetary
Union)

Early experiments

The goal of Economic and
Monetary Union was first proclaimed by the French president, Georges
Pompidou, and the German
chancellor, Willy Brandt, in
1969, immediately after President Charles de
Gaulle's departure from the scene. The blueprint (the 'Snake') set
out in the resultant Werner Report
did not, however, succeed. France was unwilling
to surrender more than a modicum of financial autonomy. Moreover, the
collapse of the dollar-based Bretton Woods
international monetary system in 1971, followed by an unprecedented
rise in oil prices and global inflation, led to unstable foreign exchange
markets in which no artificial attempt to link European currencies could
have expected to survive without the sturdiest of political and institutional
underpinnings.

In 1977, four years after the demise of the 'Snake', EMU
was relaunched by the Commission
president, Roy Jenkins, supported
by the next generation of French and German political leaders, Valéry
Giscard d'Estaing and
Helmut Schmidt. The revised scheme,
known as the European Monetary
System, was designed to bring about a zone of currency stability
in Europe through the Exchange
Rate Mechanism (ERM)
and a new quasi-currency (not legal tender but usable in wholesale transactions)
called the ECU, or European
Currency Unit. The ERM
came into effect in 1979. More sophisticated and more firmly backed
by central banks than the earlier arrangements, it lasted more or less
unscathed for some 12 years, although the ECU,
whose value was based on a basket of currencies, did not match the strength
of the D-Mark.

The Maastricht era

The ERM had initially
been a flexible framework, with room for rate adjustments. But in 1989
a committee of central bankers and economists headed by Jacques Delors
made recommendations for a concrete three-stage process of harmonising
national economic policies, fixing exchange rates and finally adopting
a single currency. From the Delors
Report would spring the Maastricht
Treaty, which made EMU
its centrepiece. Alone among European leaders, and despite being undermined
by dissent in her own cabinet, Margaret
Thatcher attempted to stand
out against these developments.

The Maastricht Treaty, signed
in 1992, closely followed the Delors
proposals. Stage One of EMU
would involve the abolition of exchange controls, the entry of all currencies
into the narrow band of the ERM
and steps towards economic convergence. Stage
Two, starting in 1994, would see the creation of a European
Monetary Institute and the granting of independence to national
central banks, paving the way for a European
Central Bank (ECB) free
of government interference. In Stage Three,
from which the UK and Denmark
negotiated opt-outs, countries meeting the
'convergence criteria' would
fix their rates irrevocably and move towards the transformation of the
ECU into a genuine currency,
with a target date of 1997 but some allowance for slippage.

The UK had reluctantly participated
in the ERM for the first
time in October 1990, a period which coincided with a domestic recession,
German reunification and the inauguration of an increasingly rigid policy
of European currency management, which in practice meant locking every
country's exchange rate to the D-Mark. A series of disasters ensued.
It suited Germany, which had over-inflated
its money supply in the process of exchanging D-Marks one-for-one for
East German Ostmarks, to keep interest rates high. Other countries,
especially the UK, needed low interest
rates to stimulate their economies. The Maastricht
Treaty proved extremely controversial. Denmark
rejected it in a referendum. It barely
passed through the British Parliament and doubts arose over its ratification
in France. In September 1992 these strains
culminated in violent currency speculation, resulting in the departure
of the pound and the lira from the ERM
and the devaluation of the peseta. A year later, renewed currency turmoil
destabilised the franc and virtually destroyed the European
Monetary System.

The chaos of 1992 and 1993 appeared for a while to have wrought such
havoc that the whole EMU
project might fail or be postponed. Nevertheless, a five-year period
of budgetary stringency and relative monetary calm, albeit accompanied
by heavy unemployment on the Continent, gradually enabled most of the
would-be participant countries to fulfil, or at least lay claim to fulfilling,
the majority of the convergence
criteria. Moreover, the momentum in the corridors of power was well-nigh
unstoppable. European governments had from the beginning recognised
EMU as an essentially political
concept. Unable to force the pace of constitutional integration, because
of the reluctance (the Commission
would say unpreparedness) of voters, François Mitterrand,
Helmut Kohl and Jacques Delors
had pressed forward with monetary integration instead. Economic integration
would follow, then full federation. The lesson of history, that political
unification should have preceded a single
currency, as it had done in the USA,
Germany, the UK
and Italy, was understood, but consciously
rejected in favour of an inversion of the natural order of events. Only
in the UK, where Thatcher
had been ousted late in 1990, did politicians delude themselves, and
seek to persuade the public, that EMU
was primarily economic in intent.

Throughout Europe, big business generally
supported the project. Little caring for national political independence,
the multinational corporations saw in EMU
the prospect of regional currency stability, enabling them to plan capital
expenditure and to budget costs and revenue
with more assurance. Their opponents they decried as small-minded nationalists.
In Germany and France,
prominent businessmen were under considerable pressure to conform to
official thinking. In the UK, business
opinion was divided. The country's financial
structure, its trading patterns and the timing of its economic cycle
were so different from those of the Continent that the arguments for
staying out of the single currency
were stronger than elsewhere. In many countries, small and medium-sized
businesses, more entrepreneurial and less susceptible to political influence
than the big corporations, were opposed, seeing in the euro (the ECU's
name having been quietly dropped) unavoidable costs and unconvincing
benefits.

Among central banks, the Bundesbank
was the most outspoken, articulating the dangers of EMU
in a series of articles and speeches. The scope of its arguments was
comprehensive: monetary union could not work well without unified tax
and spending policies; this implied political union. In the absence
of interest and exchange rate flexibility
the cost of adjusting to economic change must be felt in jobs, wages,
inflation and migration; Europe's labour
rigidity and the immobility of its populations (a product of language
and cultural differences) were obstacles to the success of the single
currency. The euro was not indispensable to the single
market and would be weak unless financial discipline were maintained
indefinitely; the convergence
criteria were ill-chosen and the French desire to politicise the
ECB could be the excuse
for previously inflationary countries to revert to bad habits. The Bank
of England echoed many of these sentiments. Both central banks couched
their warnings in cautious words, careful not to trespass too far into
political territory or to sound as if they were selfishly defending
their own independence.

Throughout the 1990s EMU
dominated the political scene in Europe.
Thatcher's fall from power
had been partly due to her hostility towards it; John Major's
defeat in 1997 owed much to the pound's ignominious expulsion from the
ERM in 1992; Mitterrand's
authority was never the same after his wafer-thin majority in the French
referendum on the Maastricht
Treaty. By 1998 German unemployment had climbed over 4.5 million,
the highest since 1933, but Kohl
seemed obsessed with monetary union to the exclusion of other concerns:
next year he too would be voted out of office. Denmark
(ordered by its partners to hold a second referendum
in 1993 after the first had gone wrong) was cowed into a reluctant Yes.
Spain's austerity programme drove unemployment
to over 22% in 1995, undermining the popularity of Felipe González.
Nationalist or communist parties exploited antipathy to EMU
to gain ground in Austria, France,
Italy and Germany,
the communists entering the ruling coalitions in France
and Italy, where they were obliged to come
to terms with belt-tightening measures that offended leftist orthodoxies.
In 1997 the new French president Jacques Chirac
lost his conservative Assembly majority when a snap election to endorse
budgetary restraint backfired with a victory for the Socialists. Less
than a year away from the 1999 starting date for the single
currency, unemployment in the member states stood at close to 20
million, and although the Continental economies were at last recovering
there were few politicians in the EU
who had not been scarred by the preparations for the new monetary order.

Nevertheless, in the contest against economic Cassandras and supporters
of the nation state, victory had gone to the integrationists. Their
assertions that European unity, even peace, depended on EMU
had not convinced ordinary people, who remained largely resistant to
losing their currencies in Germany, France,
the UK, Sweden
and Denmark (in Italy
and Spain, as in the de facto D-Mark zone
of Belgium and The
Netherlands, the population was more favourable). But the citizens
of France and Germany
would have no say in the matter, for no further referendums were planned
and the major parties in both countries were committed to the single
currency. Accordingly, on January 1999, the last date permitted
under the Maastricht Treaty, the
currencies of the qualifying member states became irrevocably fixed
to each other. In 2002, when the mints and printing presses have done
their work, the euro will replace the D-Mark, the French franc and all
the other participating national currencies.

The choice of participants

Which countries would be included was decided by the European
Council in the spring of 1998. All but the UK,
Denmark and Sweden
had declared their wish to join as soon as possible, although Greece's
financial condition prevented its immediate admission. Germany,
with vivid folk memories of wheelbarrow money in its great inflation
of the 1920s, would have preferred to confine the single
currency to a small group of countries with a northern sense of
discipline, reinforced by an independent ECB
modelled after the stern Bundesbank.
France, equally afraid of deflation and
German dominance, favoured a higher degree of political control and
the inclusion of the southern states of Italy,
Spain and Portugal.
Both France and Germany
would have liked the UK to be included
- France to dilute German influence, Germany
because of the UK's strong finances
- but Tony Blair's recently elected
government, concerned about the mismatch of economic cycles and the
hesitance of the British electorate, indicated that, although in principle
positive, it was in no hurry to join. Ironically, whereas the UK
readily met the main qualifying tests laid down in the Maastricht
Treaty, neither France nor Germany,
the two prime movers of EMU,
found it easy to do so.

The resolution of these differences
of opinion proved less difficult than had
been expected. The Latin countries based their claim on the sincerity
of their conversion to fiscal rectitude. Accused of creative accounting,
Italy retorted that even Germany
was not above the devices it criticised in others. If Italy
and Spain were rejected, their interest rates
would soar and the cohesion of the EU
would be severely tested. Accordingly, despite German qualms, when the
Commission
recommended that the Mediterranean nations be included in the single
currency, the heads of government agreed without demur. At the Cardiff
summit, eleven nations adopted the euro. The UK,
Denmark, Sweden
and Greece alone would retain their own
currencies.

Difficulties and opportunities

With less than a year to run before the introduction of the new currency,
the technical obstacles came into sharp focus. There was anxiety about
the possibility of speculation during the period after the participants
had been selected but before the national currencies became mere subdivisions
of the euro in 1999. As the range of complications proliferated, so
the estimates of expenditure on systems escalated. The anticipated software
costs were compounded by the revelation that few computers were programmed
to cope with the transition from the 20th to the 21st century. There
might not be enough technicians to handle both problems simultaneously.
The cost of preparing for the euro was estimated at $150 billion - but
the US computer company IBM, which was well placed to evaluate the question,
let it be known that it considered this an understatement.

There is no example in history of a lasting monetary union that
was not linked to one state. Dr Otmar Issing, former chief economist,
Bundesbank

The plans for directing future monetary policy grew more rather than
less confusing as the deadline approached. It was originally intended
that the ECB alone would
be responsible for interest rates and the money supply, with price stability
its main objective. But France pushed for
growth and employment to figure as equal
priorities. The proposed ministerial Stability
Council, or Euro-X club, seen by Germany
as an earnest of fiscal prudence on the part of member states, was seen
by France as a political counterweight to
the ECB. Moreover, exchange
rate policy, allocated under the Maastricht
Treaty to the ECB, was
agreed during the 1997 Amsterdam summit to be a joint responsibility
with the Stability Council. The
European Parliament also pressed
its case for an oversight role and France
suddenly turned the choice of the ECB's
first head into a political controversy, unsuccessfully demanding the
position for Jean-Claude Trichet,
president of the Banque de France. These
developments challenged the anti-inflationary bias of policy on which
Germany's consent to EMU
had been predicated.

While the politicians were concentrating on bringing the single
currency to fruition, it paid them to paper over the difficulties.
Sooner or later, however, these would have to be faced. As long as the
EU's economies were enjoying an
upswing, as they were in 1998 and 1999, doubtless any problems would
appear inconsequential. But time would bring the strains to the surface.
Some observers concluded that the euro must eventually lead to a material
increase in centrally disbursed EU
subsidies to alleviate the burden of regional economic adjustment. This
would entail paying more taxes to Brussels, an outcome for which the
voters had not been prepared. It was worrying, too, that state pensions
were seriously underfunded in France, Germany
and Italy: as those populations aged, a financing
chasm would open up, and who would bridge it? Pessimists foresaw a disaffected
public, rising unemployment, a Fortress
Europe mentality and even the break-up of the EU.
Informing and overshadowing every aspect of the issue was the realisation
that the direction of the economies of Europe
would in future be disconnected from the will of the people, a phenomenon
known as the 'democratic deficit'.
For the E in EMU stood for
economic union, patently an even more ambitious goal than monetary union.

Against these anxieties there were other more positive expectations.
The single market might receive fresh
impetus from the elimination of currency fluctuations and transaction
costs. Increased pricing transparency
should raise business efficiency, enabling Europe-wide
giants of industry to spring up, capable of challenging the strongest
US and Japanese competitors. The pressures of more intense competition
might be the most effective way of forcing governments to undertake
much needed tax and labour market reforms. Although the euro would not
be immune from exchange rate volatility against the dollar and the yen,
intra-European stability would improve the ability of industry to plan
for the long term, while broader capital markets might assure the new
currency the liquidity enjoyed by the dollar. In time, the euro might
become a major reserve currency, a source of inexpensive funding for
the EU. It was argued that the
inevitable compromise of national sovereignty
was an outdated concern in a world where markets are all-powerful and
security is collective.

The launch

The launch of the euro in 1999 was the occasion of brief rejoicing
at the triumph of faith over scepticism. But the currency soon began
to stumble and by the end of the year it had fallen against the dollar
by some 15% from its early high - an embarrassment to economically illiterate
politicians who had rashly promised a strong currency, but a boost to
industry within the eurozone so long as
domestic prices remained stable.

Of greater significance were the pointers to deeper issues. The expectation
that the single currency would lead
to intensified Community encroachment on national economic self-government
was quickly corroborated by Continental calls for tax harmonisation,
including a German-backed proposal for an EU-wide
withholding tax. This proposal was opposed by Britain on the grounds
that it would threaten London's pre-eminence in international capital
markets.

The problems inherent in a 'one-size-fits-all' interest rate were soon
highlighted by a surprisingly sharp divergence in the EU's
economies. Meanwhile, the UK continued
to thrive outside the eurozone, and as
fears of the consequences of isolation receded, British resistance to
the euro increased. The Chancellor of the Exchequer, Gordon
Brown, found himself excluded from Euro-X,
the council of Euroland finance ministers.
But independence had its consolations. While the UK
retained its seat at the global summit meetings of the 'Group
of Seven' nations, the central banks of France,
Germany and Italy
resigned themselves to being represented there by the ECB.
For all the constructive language of the Blair
government about the EU, the impression
grew that Britain's economic path was drifting apart from the Continent's
under the pressure of events.

On the positive side, the euro had been brought in without a technical
hitch and the ECB had settled
to its task in a professional manner. If there was a certain lack of
cohesion between a centralised monetary policy and the decentralised
management of national economies, this was to be expected and was not
on a scale to cause concern. The euro might be an initial disappointment
to savers and investors, but it had established itself as a major borrowing
currency and a liquid instrument in markets - markets which, ironically,
gravitated instantly to London. In Sweden
and Denmark there were indications of a
renewed wish to adopt the single currency.
The arguments for and against EMU
had vied with each other for 30 years: twelve months' practical experience
was far too short to resolve the debate. Indeed, it was possible that
both sides would eventually be able to claim victory. The Continent
might end up with a viable euro area, amounting effectively to an extension
of the previous D-Mark zone, while Britain, with its unique trading
and investment patterns, its different economic cycle and its fierce
attachment to self-government, might flourish best with its own currency.
Whatever the final outcome, it was certain to define much of the EU's
fate for decades to come. (See also Single
currency.)

Enarque

Enarque is the colloquial name for a graduate
of the Ecole Nationale d'Administration, the elite French institute
of higher education dedicated to preparing
young people for careers in public administration. Enarques of all ages
call each other tu and expect to run the great departments of state;
many go on to high positions in industry or the Commission.

Energy

Panic after the 1973 oil shock led to a fruitless search for a Community
energy policy, which despite the earlier
Euratom and
European Coal and
Steel Community Treaties had not previously been formulated. The
Community imports about half its energy
requirements, only the UK and The
Netherlands being self-sufficient, but there are profound strategic
differences between the member states. France
and Belgium rely - controversially, many
would say - on nuclear power; Germany,
France, the UK
and Spain produce uncompetitive high-cost
coal; and many countries are dependent on oil or gas from politically
vulnerable sources. The resulting patchwork of energy
supply, some in the private sector, some nationalised, does not lend
itself to supranational official policy-making. Nevertheless, successive
position papers, updating a strategic review undertaken by the Commission
in 1974, have provided a framework within which to consider energy
issues. The main thrust of these papers has been the promotion of energy
efficiency, renewable resources, cross-border links, security of supply
and advanced research, in some cases assisted
by EU grants or loans from the
European Investment Bank.
In 1994 a European Energy Charter was signed
by the Community, 12 former Soviet
republics and 37 European and other states, the aim being to guarantee
oil and gas supplies from the East in exchange for transfers of Western
technology and capital. Initial experience, however, has not been promising,
since foreign capital has been regarded with suspicion in Russia
and many of the ex-communist countries are trapped in poverty, chaos
and corruption.

Engrenage

Meshing (as of gears) - a word used in Eurocrat circles to describe
the deliberate process of engaging national technocrats or lobby groups
in European-level activities, sometimes subsidising them to do so, in
order to further the integrationist cause. (See also Integration
theory.)

The criteria for admission are 'Europeanness' (Turkey
qualifies but Morocco does not), democracy,
respect for human rights, readiness
to accept the acquis communautaire
and possession of a viable market economy. The application procedure
starts with a Commission
evaluation. If this is positive, there is then a negotiation of terms,
which if successful leads to approval by the Council and the European
Parliament and finally ratification
by all the member states. The whole process can take up to five or ten
years, sometimes more.

The collapse of the Soviet empire around 1990 resulted in a new wave
of Eastern European applicants, among which the Czech
Republic, Estonia, Hungary,
Poland and Slovenia
were initially singled out in 1997 for recommendation by the Commission.
In 1999, following the Kosovo crisis,
there was a change of policy. It was now decided that some of the countries
that had been helpful to the allies should be rewarded and that all
credible applicants should be treated equally as candidates. The negotiations
would proceed in parallel, though there was no expectation that the
dates of accession would coincide: some
countries would be able to comply fairly rapidly with the EU's
regulatory requirements and 80,000 pages of legislation, while the timetable
for others might slip if democratic freedoms failed to take root or
if transitional arrangements proved difficult to work out. No country
could anticipate acceptance before 2003 or 2004: many would be delayed
for at least another decade after that. The new ex-communist candidates
were Latvia, Lithuania,
Bulgaria, Slovakia
and Romania. In addition, Cyprus
(despite its constitutional complications) and Malta
(which had blown hot and cold over applying) were admitted to negotiations,
while Turkey - an applicant since 1987 but
long rejected on human rights grounds
- was finally agreed to be a candidate, though without immediate prospects
of success.

This massive potential enlargement
made it more than ever urgent to reform the EU's
institutional arrangements. Already the growth from six member states
to 15 had made decision-making cumbersome.
If 28 members were to be accommodated the Council's voting structure,
which over-weights the small countries,
would have to be modified - otherwise eleven mini-states with a total
population of some 30 million would command the same number of votes
as a combination of Germany, France
and Britain, whose populations aggregate nearly 200 million. For similar
reasons, the scope of the veto would have to be curtailed: a Maltese
veto of the great powers was not a credible scenario. The privilege
of nominating two commissioners enjoyed by Britain, France,
Germany, Italy
and Spain would have to cease, as would the
automatic right of every member state to a commissioner - 20 commissioners
were already more than enough. (Of various possible solutions, rotating
nomination rights for the less populous
countries seemed the least problematic.) The
six-month revolving EUpresidency
might have to be reviewed - a micro-island's tenure of office was unlikely
to be effective unless it was in practice conducted by the Commission.
Finally, the size of the European
Parliament would have to be limited, as proposed in the Treaty
of Amsterdam, to 700, compared with the existing 626. For a political
class exhausted by previous failed attempts at reform, it was a daunting
prospect.

The budgetary consequences of enlargement
would be substantial. The average GDP per head of the applicants was
less than a third that of the EU
average, so that a 29% population increase (assuming that all the candidates
except Turkey were eventually accepted)
would lead to an increase in the EU's
GDP of under 10%. East Germany had needed
vast subsidies at the time of reunification. The prospect of a new round
of aid to the impoverished agricultural economies of Eastern Europe
threatened to stretch the Community's
resources to breaking point. These strains would be relieved if other
member countries (notably Spain, Portugal,
Ireland and Greece)
were to agree to forgo part of their own subsidies, or if the richer
countries were prepared to make increased contributions.
Neither alternative would be easy to negotiate.

Nor were these the only issues. While many regarded enlargement
as the EU's ultimate moral justification
- the means of creating a secure, prosperous and democratic area from
the Atlantic to the Russian border - others who looked East saw there
a potential source of low-cost competition, migration and organised
crime. The average Polish wage is one-tenth of the average German wage,
and the Russian mafia have penetrated deeply into parts of Central Europe.
From Austria to Denmark,
xenophobia grew. Fears of competition were exacerbated by the paradox
that some of the ex-communist countries had embraced the liberal market
more enthusiastically than the EU
itself. Estonia, for example, had abolished
all trade barriers in 1992. Thus while there was much moralising about
the West's duty to pay the price of bringing prosperity to Eastern Europe,
in reality most of that price would have to be paid by the supposed
beneficiaries. Not only would there be the burden of complying with
EU environmental standards (Lithuania,
Slovakia and Bulgaria,
for example, would have to close their nuclear reactors), but there
would be pressure to conform to the EU's
high welfare costs. In all probability, Polish and Romanian farmers
would have to be content with lower subsidies than their rich Western
European neighbours. Indeed, it was a bitter irony that by 2000 the
EU was exporting more agricultural
produce to Eastern Europe than it imported,
since the Common Agricultural Policy subsidised
the dumping of surpluses at knock-down prices.

To enable the successful candidates to adapt to their new status there
would have to be numerous derogations from the acquis
communautaire. This could be viewed either as a justification for
a more diverse EU, in which the
differences between member states would be better respected, or as strengthening
the need for centralisation, to prevent enlargement
from carrying within it the seeds of the EU's
self-destruction. At the end of the French presidency
of 2000, a new treaty (provisionally called the Treaty
of Nice) was anticipated. It would focus heavily on these fundamental
issues. The federalists would be arguing for decisive steps towards
unification - a European constitution, a reduction in the number of
policy areas requiring unanimity among
the member states, a defence capability more independent of NATO,
a Brussels-based public prosecutor's office and Europe-wide
'political parties' funded by the EU.
Defenders of the nation state would be arguing that such undemocratic
measures would alienate their electorates even more from the entire
EU project. Meanwhile, the candidate
countries would be watching cautiously - their desire to be accepted
back into the European mainstream tempered by apprehension that, having
so recently escaped the horrors of Soviet centralism, they might be
about to surrender their hard-won independence to a more benign, yet
not entirely beneficent, bureaucracy (see Appendix
6).

Environment

Although controversy dogs the Commission's
involvement in other spheres, public support for EU
involvement in environmental protection is strong. Governments, too,
have been content to devolve some of their responsibilities in this
area to the Community, which is well
placed to organise European co-operation over such issues as emission
controls. Anything approaching a coherent EU
policy is, however, of recent origin. The original Treaty
of Rome was silent on the subject and it was not until the European
Council of 1972 that the Community
asserted its interest, backed (arguably beyond what was legally justifiable)
by the Court of Justice.

The 1986 Single European Act
set out three priorities: improving the quality of the environment;
health protection; and the conservation of natural resources. Since
then, the Commission
has issued Directives on matters ranging from atmospheric pollution
to water quality and has set up the European Environment
Agency in Copenhagen to liaise with national governments and collect
scientific research. The 1997 Treaty
of Amsterdam required the Community
to incorporate the protection of the environment
into all relevant legislation.

Despite its popular appeal, environmentalism is full of pitfalls. There
is a natural conflict between stringent regulation
and the free market. The 'green' member states tend to push for a high
level of protection, countering the threat to their competitiveness
by urging the Commission
to impose the same standards on the less environmentally conscious countries.
By a similar line of reasoning, at the Kyoto Summit of 1997 the EU
delegation pointed out that unilateral reductions in power station or
vehicle emissions would put Europe at a
disadvantage unless matched by US, Japanese and developing country reductions.
Moreover, much of the scientific evidence is debatable. Doubts remain,
for example, over the explanation of global warming, the phenomenon
widely believed to threaten the planet and therefore to justify massive
preventive expenditure.

Another battleground is the cost-effectiveness of legislation drafted
by bureaucrats without regard to local conditions. The struggle between
allegedly offending businesses and enforcement agencies - the latter
armed with draconian powers to penalise infringements of sometimes inappropriate
regulations - appears set to be a recurrent EU
theme in the 21st century, with the warring parties citing uncertain
scientific hypotheses and the rival claims of health and employment.
Yet another major theme will be the costly clean-up of the pollution
caused by industry in the former communist countries of Eastern Europe.
A rectification programme is a precondition for accession
to the EU, but few outsiders understand
the scale of the devastation which has been perpetrated in these countries
over the last 50 years.

EP

ERASMUS

The most successful of the Community's
educational initiatives, ERASMUS (an acronym
for European Community Action
Scheme for the Mobility of University Students) offers some 50,000 students
annually financial support to spend a year - and to earn course credits
- in another university within the EU.
In 1995 ERASMUS became part of the wider
Socrates programme for co-operation in
the educational field.

Erhard, Ludwig (1897-1977)

The acknowledged father of West Germany's
post-war economic miracle, Ludwig Erhard
was Chancellor Konrad Adenauer's
economics minister from 1949 to 1963 and later his successor as chancellor.
A convinced free-marketeer, he dismantled Hitler's state-directed system
and devoted himself to export-led revival, based on free enterprise
but with a concern also for social welfare. The 'social
market economy' is associated with Erhard's
name, although he came to regret the phrase's connotation of featherbedding,
labour rigidity and high employment
costs.

He had grave doubts about federalism,
accepting the ECSC
and the Treaty of Rome only after
much agonising. He was also suspicious of the idea of a customs
union, fearing it would encourage protectionism. During his tenure
of office, West Germany's exports grew
eightfold and the economy outpaced every other European country. Low
inflation, high savings and a persistent balance of trade surplus were
the hallmarks of this period, which launched Germany
on its path to becoming Europe's leading
industrial power.

ERM

ESA

ESC

ESCB

ESDI (European
Security and Defence Identity)

It is a universal principle of defence
policy that it proceeds from agreed foreign policy aims - protection
of overseas trading interests, deterrence of military threats, the honouring
of alliances, the defence of a friendly political order, and so forth.
The aims of the member states of the EU
are too disparate to underpin a coherent foreign policy, as has been
clear in several crises, from the Falklands War to the Gulf and Yugoslav
crises. Thus the ESDI
is designed less to describe a genuine identity of interests than to
justify the EU in building a military
apparatus appropriate to a unified state.

Given France's historical antipathy to
US 'hegemony', reflected in its refusal to join NATO's
integrated command, the ESDI
poses the question whether the EU
means to strengthen its capacities within NATO
(a burden-sharing move that the USA
would welcome) or whether it means to create a rival to NATO.
Europe's rhetoric on this varies, depending
on the speaker and the audience. Either way, large increases in European
defence expenditure would be necessary, which would go against a strong
trend of cuts during the last decade. (See also Common
Foreign and Security Policy.)

Estonia

Sandwiched between Russia and the Baltic
Sea, Estonia has historically been dominated
by its eastern neighbour. The USSR seized the country in 1940 under
the infamous Molotov-Ribbentrop pact, lost it to the Nazis in 1941,
recaptured it in 1944 and held it as a subject state until November
1989, when the Estonian Supreme Soviet declared the annexation illegal.
Multi-party elections were held in March 1990. The constitution of 1992
followed, securing freedom for the press and committing the state to
privatisation and market liberalisation.

The radical right-wing party elected in 1992 governed for two years,
abolishing tariffs and subsidies, pegging the currency to the D-Mark,
selling off state industry and laying the foundations for perhaps the
most successful of all the former communist economies. Subsequent coalition
governments have endorsed free market policies, enabling the country
to benefit from an influx of foreign investment and a switch of trading
partners: by 1999 three-quarters of its trade was with Western Europe.
Estonia applied for membership of the EU
in 1995, obtaining a favourable recommendation from the Commission,
and although the country is not without its problems (corruption, low
wages and the presence of a large minority of ethnic Russians), it is
likely to be among the first candidates to be accepted.

Euro

The unlovely name for the European single
currency. The originally planned name was the écu. This was
rejected because Germany disliked the implied
reference to the weak European
Currency Unit (ECU).
Names with honoured traditions in European history, such as florin,
shilling or ducat, failed to survive committee decision-making,
and euro was settled upon as a compromise.

Eurobond

So called not through any connection with the EU
but because the market originated in Europe,
a eurobond is an internationally owned
debt instrument in bearer form, issued by governments or companies and
denominated in any convertible currency, the interest being paid without
withholding tax. The market is centred in London.

Eurocommunism

A term used to denote communism modified by democracy. The Franco-Italian
Eurocommunist Manifesto of 1975 abandoned the idea of one-party rule
and the dictatorship of the proletariat in favour of free elections.
Thereafter, however, the French Communist Party stayed close to the
Moscow line and it was the Italians who became identified with Eurocommunism,
earning the opprobrium of the Soviet Union and evolving ideas little
different from those of ordinary socialism. Before the advent of Eurocommunism,
which was supportive of European integration, old-fashioned Marxist-Leninists
in Western Europe had opposed the Common
Market (the maverick federaliser Altiero Spinelli
being a rare exception to this rule) on the grounds that Soviet interests
were best served by a divided free world. The collapse of the Soviet
empire around 1990 spelled the end of Eurocommunism
as a distinctive force.

Eurocontrol

Eurocontrol, founded in 1960 with
its headquarters in Brussels, is inoperative and in regular danger of
being closed down. If properly activated, it could be one of the EU's
more useful bodies. Its object is co-ordinated air traffic control -
an urgent need in Europe, where control
of airspace is jealously guarded by national governments and co-operation
is inadequate, causing unnecessary risk and delays to passengers.

Eurocorps

A joint initiative of President François Mitterrand
and Chancellor Helmut Kohl, the
Eurocorps was inaugurated in 1993, based
on a proposed 35,000-strong Franco-German force. It became operational
in 1995 with over 50,000 French, German, Belgian, Luxembourg
and Spanish troops, Belgium having committed
nearly half of its 45,000-strong army to the corps. Membership is open
to all the WEU signatories,
some of which, including The Netherlands,
Italy and Poland
(a WEU associate), have
signalled their interest. Forces allocated to the Eurocorps
are also assigned to NATO,
on which the corps would be reliant for support services in a sustained
emergency. The role envisaged for the Eurocorps
is that of peacekeeping and crisis management, with the WEU
providing the political framework - a format not perhaps ideally suited
to fast-moving operational conditions. In 1999, Britain offered logistical
support to the Eurocorps, to the alarm
of the USA, which feared that an
embryonic European army was in the making, rather than a burden-sharing
force under NATO's
umbrella. (See also Common
Foreign and Security Policy and WEU.)

Eurocrats

European bureaucrats, recruited from all the member states, some working
their way up as career officials, others at senior level parachuted
in from outside (parachutage). These officials, over two-thirds of whom
work for the Commission,
owe their loyalty and pay their taxes to the EU.
Europhiles make play of how few Eurocrats
there are (around 29,000), but equally to the point is their influence
on the tens of thousands of national civil servants who are seconded
to them. This process, known as engrenage,
or meshing, is designed to inculcate European attitudes into the officials
of member states by seating them on joint committees with Eurocrats,
where they collaborate in detailed technical work, for example on product
safety, fish quotas or agricultural issues.

Eurocurrency

A currency deposited, lent or traded outside its domestic market, chiefly
in the global market centred in London. Hence eurodollar,
euroyen, euro-DM, eurosterling (where the investors are offshore from
the UK) or even, inelegantly, euro-euro.
The term is unrelated to the EU.

Eurodollar

A dollar located outside the USA,
especially in a European bank or branch, but it could equally be in
an Asian or Latin American financial institution. The term is unrelated
to the EU. The centre of the eurodollar
market is London.

Eurofanatic

A person who uncritically and enthusiastically accepts all proposals
and defends all policies of the European
Union.

Eurofighter

A joint British, German, Italian and Spanish project, the Eurofighter
is an advanced fly-by-wire military aircraft, whose commercial viability
depends principally on orders from the partner countries. As a short-range
interceptor which has attracted doubts about its capabilities and its
suitability for post Cold War warfare requirements, the Eurofighter
is generally defended more on political than on strategic grounds.

Euroland

Those EU member states which have
adopted the euro as their currency. Otherwise known as the eurozone.

Euromyth

A term used by European enthusiasts to denote false stories of intrusive
and unnecessary Directives or Regulations emanating from Brussels. Unfortunately,
rather too many of these stories prove on investigation to be substantially
true. A feature on which Eurosceptics and Europhiles agree is that many
of the most oppressive rules stem from over-zealous drafting or enforcement
by national (especially British) officialdom of relatively innocuous
proposals originated in Brussels. From the victim's standpoint, however,
the result is the same, so long as redress is blocked by the ability
of officials to shelter behind the Community
as their legitimising authority.

The term is used in the opposite sense by sceptics, to denote misleading
or exaggerated Commission
claims; for example, that the Community
has been responsible for preventing war, or that EMU
will create millions of jobs, or that 'subsidiarity'
brings decision-making closer to the people.

Europa (1)

Europa (2)

With their unique gift for imagery, the ancient Greeks symbolised Europe
in the myth of Europa, the lovely daughter
of the King of Tyre, who was abducted by Zeus after he had taken the
form of a bull. She later married the King of Crete and bore a son,
King Minos, who built the notorious labyrinth. Thus within a single
story Greek mythology perfectly captured Europe's
abiding beauty, its propensity for political rape, its descent into
labyrinthine bureaucracy and the ambiguity of its eastern borders.

Europe (1)

After the Roman conquests, Europe's western
border was established as the Atlantic north of Gibraltar.
But to the east the situation has never been clear. The Romans fought
incessantly with barbarians along the Rhine and the Danube. Some ancient
geographers considered that Asia began at the River Don. Today we think
loosely of a boundary running from St Petersburg on the Baltic to the
River Dnieper and the Black Sea. A vast area is vaguely known as 'Eurasia'.
The idea of a Europe 'from the Atlantic
to the Urals' is essentially political, asserting European interest
in eastward expansion or Russian aspirations for a legitimate say in
European affairs. On any definition Turkey
remains a surprising candidate for the EU.

Europe (2)

Europe as referred to by Europhile
politicians and Community officials is a deliberately ambiguous idea,
suggestive of an identity between the geographical Europe,
the Europe of civilisation and the complex
of treaties and supranational bodies that make up the European
Union. (See also 'European idea'.)

Europe à la carte

Europe Agreement

An Association Agreement
with a non-EU country, providing
a framework for the associated country's gradual integration into the
Community via free elections, the rule of law and open markets.

Europe day

May 9, the anniversary of Robert Schuman's
clarion call in 1950 to merge the French and German coal and steel industries.

Europe of Nations

The idea that nation states should be the main determinants of the
future of Europe. Charles de
Gaulle used the term to denote his vision of a Community built on
co-operation, as opposed to an integrated Union in which power lay predominantly
with the Commission
and other supranational bodies. Margaret Thatcher
later adopted the same theme.

European
Agricultural Guidance and Guarantee Fund (EAGGF or FEOGA)

European anthem

Generally assumed to be the anthem of the European
Union, the theme (Schiller's 'Ode to Joy' set to the last movement
of Beethoven's Ninth Symphony) is in fact the anthem for the members
of the Council of Europe, currently
44 countries, many of which are outside the EU.
(See also European identity.)

European
Bank for Reconstruction and Development (EBRD)

The EBRD
was set up in 1991 with a callable capital of 10 billion ECUs (now euros),
mandated to assist the transition to free markets of the former communist
countries of Central and Eastern Europe.
The aim was to prove the EU's independence
from the USA's financial muscle
and expertise, but doubt soon turned to embarrassment as President François
Mitterrand's friend and
adviser Jacques Attali, the bank's first president, spent over £200
million on marble, furnishings and French chefs at his London headquarters.
The next president, Jacques de Larosière, brought discipline
to expenses and lending during his five year tenure from 1993 to 1997,
establishing the bank as a serious institution and doubling its authorised
capital to 620 billion. Nevertheless, its meagre profits have repeatedly
been consumed by loan loss provisions, the latest setback being the
Russian crisis of 1998.

The bank has 60 shareholders, just over half its capital being owned
by the member states and institutions of the EU.
It is co-operating with the Community
and the World Bank to step up financing in Central European countries
that have been accepted as candidates for EU
membership. Some 80% of its financing is in debt form and 20% in equity
form, its total commitments being limited to its paid and unpaid capital.

European Central Bank (ECB)

Like its predecessor, the European
Monetary Institute (EMI),
the ECB is located in Frankfurt.
It was established in 1998 under the terms of the Maastricht
Treaty as an integral part of the final stage of EMU.
The Treaty makes the new institution part of a European
System of Central Banks, but in practice the role of the participating
national central banks is peripheral. They give the ECB
advice, supply members to its Governing Council (which meets ten times
a year) and implement its decisions. Their independence of action, however,
ceased as soon as the ECB
came into existence.

The primary objective of the ECB
is price stability in the eurozone. The
Treaty stipulates that the bank must be free of political influence
and that it is responsible for the monetary policy, foreign exchange
operations and management of the reserves of the countries participating
in the single currency. Under French
pressure, however, employment has been
elevated as a priority. It had originally been planned - at least by
Germany - that a Stability
Council of finance ministers would ensure that the ECB's
monetary prudence would be reinforced by fiscal discipline in the single-currency
countries. But the Stability Pact soon became known as the Stability
and Growth Pact and the Stability
Council as Euro-X, with an informal remit
to co-ordinate monetary and economic policy. Uncertainty reigned as
to how future policy differences would be reconciled, given the clouding
of the clear authority granted to the ECB
in the Maastricht Treaty.

The euro was duly launched on 1 January 1999. But a number of issues
clouded what was billed as a celebration. The French government had
made a last-minute attempt to install a French banker, Jean-Claude Trichet,
as the ECB's first president.
The smaller countries were not happy to see the choice settled behind
closed doors with an unofficial deal that the Dutchman Wim Duisenberg,
the natural candidate as outgoing president of the EMI,
would be appointed but would not serve out his full term. The UK
sought in vain to join Euro-X, and was offered
instead an assured seat on the ECB's
six-strong Executive Board if, or when, the country decided to adopt
the single currency. The powerful
leftist German finance minister Oskar Lafontaine interfered to try to
force the ECB to cut interest
rates (Lafontaine was shortly dismissed, but the impression of contempt
for the Maastricht Treaty lingered),
and the euro's first year saw it decline sharply against the dollar
and the pound, threatening inflation and dismaying savers, although
the devaluation was of help to Continental manufacturers. Amid these
distractions, it was easy to overlook that the ECB
itself had performed well, steering the new currency skilfully through
a host of technical pitfalls. (For a fuller description of the political
and monetary background, see EMU.)

European Centre for
Nuclear Research

European Coal and
Steel Community (ECSC)

The ECSC was
the acorn from which grew the EU.
The brainchild of Jean Monnet,
it was created by the 50-year Treaty
of Paris in 1951 following a proposal of the French foreign minister
to pool the French and German coal and steel industries (the Schuman
Plan). The object was to make war between those countries impossible
by putting essential production under the control of a supranational
body. Germany immediately agreed, and when
Italy and the Benelux
countries decided to join as founder signatories, the
Six came into being. In 1957 the same countries formed the EEC
through the Treaty of Rome.

The ECSC was
the institutional model for the EEC,
with a Council of Ministers
representing the member states, a High
Authority (equivalent to the Commission,
with Monnet as its first president),
an Assembly of national parliamentarians and a Court
of Justice, all based in Luxembourg.
The guiding philosophy of the project was political; economically, its
policies were a compromise between free-market ideas and interventionism,
the reduction of internal trade barriers being offset by price harmonisation
and the right to curtail production and imports.

Reluctant to compromise its sovereignty,
the UK did not participate. Even
among the members there was disagreement about the appropriate sharing
of powers between the High Authority
and national governments. The advent of the more comprehensive EEC,
however, soon began to render the ECSC
redundant; in 1967 the two Communities were substantially merged, many
of their functions being consolidated in Brussels. Although the Treaty
of Paris is still occasionally invoked for purposes of industrial
restructuring, when it expires in 2002 it will doubtless be finally
replaced by the Treaty of Rome.

European
Commission (Commission, or Commission of the European Communities)

In intergovernmental matters
the Commission
is less authoritative. But it has the right to be 'fully associated'
with all developments in regard to the Common
Foreign and Security Policy and Justice
and Home Affairs Policy (no casual matter - each policy has its
own department, headed by a commissioner). The president of the Commission
attends international summit meetings on a par with heads of government.
The smaller states attach great importance to this role, which they
see as a safeguard against the weight of the larger countries.

The European Parliament has
made repeated efforts to encroach upon the power of the Commission
and has made some progress in that direction. In particular, it has
the right to be consulted about the choice of president, to dismiss
(or refuse to appoint) the commissioners en bloc and to decide certain
matters jointly with the Council. The Commission,
however, has retained de facto power virtually unchallenged, through
its mastery of its briefs, its unique access to information
and its proximity to decisions.

The Treaty of Rome enjoins strict
independence on commissioners, who owe their duty only to the Commission.
The president is chosen (for a four-year renewable term) by member governments,
which in practice has meant by France and
Germany, although this could change if,
for example, the UK, Italy
and Spain were to adopt a common candidate.
The 20 commissioners are also nominated by member states (in their case
for a five-year renewable term), their portfolios being allocated by
the president, generally under pressure from the more powerful national
governments. Currently, the five largest states (Germany,
France, the UK,
Italy and Spain)
supply two commissioners each, but the approaching enlargement
of the EU, combined with the provision
that each country has the right to nominate one of its own nationals,
will lead to the cancellation of this privilege (in compensation, the
Council votes will be changed to give more weight to the countries with
the biggest populations).

The Commission's
portfolios are divided into departments, known as directorates (more
accurately, directorates-general or DGs). Each commissioner is responsible
for all or part of the work of each DG, assisted
by the departmental head, or director-general, and a private office,
or cabinet. Commissioners also take on
miscellaneous other individual responsibilities, for example for translation
or statistics. The overall administrative head of the Commission's
17,000 employees has the title secretary-general.

In 1999, faced with allegations of negligence, nepotism and maladministration,
resulting in widespread unchallenged fraud,
the Commission
narrowly survived a censure motion by the
European Parliament through
collusion with the Parliament's Socialist group. Two months later, however,
a devastating independent report judged the Commission
to be collectively incompetent and unwilling to accept responsibility,
whereupon the Commission
resigned en bloc. The consequence of the scandal was to strengthen the
relative power of the Parliament, but also to vest more authority in
the president, on the grounds that he could hardly assume responsibility
for the Commission
without having greater influence over the running of its affairs and
the selection of the key 'ministers'. The early period of Romano Prodi's
term of office revealed him as a dedicated federalist, who was inclined
to refer to the Commission
as his 'government' and to the Eurocorps
as the 'European army'. On the task of reforming the Commission,
however, he was not entirely convincing.

The most influential of the Commission's
ten presidents were indubitably its first, Walter Hallstein,
who had led the West German negotiations over the Treaty
of Paris in 1951 and the Treaty of
Rome in 1957; and its last but two, the Frenchman Jacques Delors,
who ushered in the Single European
Act in 1986 and forced through the Maastricht
Treaty in 1992. Both men were zealous integrationists, with strong
characters and the backing of their own national governments (Delors
also enjoyed the support of Germany's Chancellor
Helmut Kohl). Both gained stature
from being reappointed and were prepared to take on powerful political
opponents - respectively Charles de
Gaulle and Margaret Thatcher.
And both were at heart technocrats more than democrats. Next to them,
the president who made the greatest impact was perhaps Roy Jenkins
(1977-81), who relaunched EMU
in 1979 with the Exchange
Rate Mechanism.

European company

There is no such thing as a European
company, there being no uniformity of company law within the EU.
This defect detracts from the single market,
for example by impeding cross-border mergers.
The Commission's
first attempt to create a European
Company Statute was made in 1975 but foundered on its proposal for
a German-style two-tier board, with compulsory worker representation
on the supervisory board. The Commission's
emphasis on building the protection of workers' rights
into a Europe-wide statute has been seen
by some states as inimical to competitiveness and has ensured continuing
opposition to the idea.

The freedoms contained in the Convention
are added to from time to time and are in the main uncontroversial.
Nevertheless, the encroachment of the EU
and the law into the field of social rights
gives rise to concern that the judiciary may become politicised as the
concept of rights is expanded to include
a growing number of contentious entitlements. Another consequence is
that the European Court of
Justice may parallel the Court
of Human Rights as the tribunal of last resort. The degree of overlap
between the two courts' spheres is illustrated by the fact that the
Amsterdam and Maastricht Treaties (including the Social
Chapter) not only recite the Convention
as establishing principles of Community
law but also recognise, or pave the way for, such entitlements as
the right to 'employee-employer dialogue', 'equality between the sexes'
and 'freedom from exclusion'. Whether these are properly classed as
fundamental human rights, and how they
should be interpreted and applied, is far from clear.

The Treaty of Amsterdam went
so far as to permit the European Council
to suspend the voting rights of a member
state found guilty of breaching the Treaty's 'fundamental principles'.
This gave rise to lively debate when Jorg Haider's
Freedom Party entered the Austrian government. While the Commission
could point to no specific contravention, and therefore took no action,
the other member states treated some of Haider's
extremist speeches as grounds for a diplomatic boycott. Neutral observers
noted that some of the boycotting governments were kept in power by
communists and that it would scarcely be possible to form a right-of-centre
government in Italy without the support of
parties that could be described as neo-fascist by their opponents. The
prospect of an outright conflict between democratic legitimacy and political
acceptability was alarming.

In external relations, pragmatism towards human
rights issues on the part of the larger member states has generally
been the order of the day. A blind eye is turned to abuses committed
by powerful countries with export potential, such as China. The EU
itself, however, and particularly the European
Parliament, has sought to raise the profile of these issues, refusing
membership and blocking Association
Agreements where applicant states fail to abide by the Convention.
In the late 1960s Spain, Portugal
and Greece had been affected by this stipulation,
as in the late 1990s were Turkey and Slovakia.

European Council

The European Council (not to be
confused with the Council of Ministers)
refers to the twice-yearly, or occasionally more frequent, summit meetings
of EU heads of government (plus
the directly elected presidents of France
and Finland) and the president of the Commission.
It is not an official EU institution.
Although there had previously been occasional summit meetings, these
were not put on a regular footing until 1974. Since then, the European
Council has evolved into the EU's
ultimate decision-taking body, resolving
problems that have proved intractable at lower levels and serving as
the arbiter, and sometimes the engine, of the political and constitutional
agenda.

The meetings, which are also attended by foreign ministers and one
Commission
vice-president (and, when appropriate, by finance ministers), are intended
to be small, grand and informal, in settings which encourage the formulation
of strategy and facilitate the bartering of treasured national objectives.
The decisions of the European Council
are normally expressed as Conclusions or Declarations, having no status
in law but creating the framework for Community legislation or common
action among the member states. The European
Council has been responsible for launching or approving virtually
every significant European policy since its inauguration, including
the Single European Act, the
Treaties of Maastricht and Amsterdam, the reunification of Germany,
the accession of new states, the selection
of countries for the single currency
and the co-ordination of foreign policy and defence. With their red
carpets and motorcades, and with the media in close attendance, the
meetings offer irresistible opportunities for eye-catching initiatives
and contribute by their very existence to the momentum of European integration.

European Court of Justice
(ECJ)

The ECJ in Luxembourg
is the highest court of the EU.
There is no appeal from its rulings. Where Community
law conflicts with national law it outranks the domestic supreme
court, superseding, for example, Parliament and the House of Lords as
the ultimate legal authority in England and Scotland.

The ECJ was one of the
first Community institutions, being set up by the Treaty
of Paris in 1951 and enjoined by the Treaty
of Rome in 1957 to ensure the legal observance of all the European
Treaties. Its judges, one from each member state, sit in panels, delivering
only collegiate judgments (dissenting judgments, if any, are not published).
Cases are summarised by an advocate
general in a reasoned submission, which the judges consider together
with the written arguments of the parties to the action. The ECJ
deals principally with failures of omission, for example failure by
member states or Community institutions to meet their Treaty obligations.
It also has powers of judicial review and hands down 'preliminary
rulings' to national courts where questions of possible conflict
of law arise. Competition policy, staff disputes and certain other cases
are delegated to the lower Court
of First Instance.

Over the years the ECJ
has taken every opportunity to extend its scope. As early as 1960 it
described its ultimate rationale (ultima ratio) as being to enable 'the
Community interests enshrined in the Treaty to prevail over the
inertia and resistance of Member States'. In landmark judgments of 1963
(Van Gend en Loos) and 1964 (Costa v. Enel) the ECJ
asserted its right to intervene directly in domestic cases and to strike
down domestic law, thereby enabling it to turn the 'preliminary
ruling' into an instrument for obliging national courts to follow
(and enforce) the Court's interpretation of European
law. The Court attaches great significance to the underlying objectives
of the Treaties, as expressed in their preambles, with their theme of
'ever closer union'. It prefers to base its interpretations on the purpose
of legislation rather than the literal text, and does not shrink from
reading new integrationist meanings into the Treaties. This subordination
of jurisprudence to a political end has earned the ECJ
considerable odium (some of which would doubtless be more properly directed
against the Treaties), especially in Denmark,
Sweden, France
and the UK. The progressive extension
of European legislation into the domestic arena has even given rise
to criticism in Germany.

Those who value national sovereignty
and self-government object not only to the supremacy of Community
law and the expansionism of the ECJ,
but also to the lack of a democratic framework for the judicial system.
Neither the law-making of the EU
nor its constitutional underpinning is legitimised by an elective process.
That the Court construes its principal function as the advancement of
unification is at odds with the Anglo-Saxon concept of the law as a
bastion of protection against over-mighty authority, including the authority
of the government. Where the main component of the 'government' is a
bureaucracy with the same political agenda as the supreme court, as
is the case in the EU, this is
a troubling feature.

It is often argued that the EU
is in transition and must eventually develop into a democracy. Nevertheless,
in the context of the ECJ,
there are crucial questions to be answered. Where would be the checks
and balances if the Court were to exceed its lawful powers? Could it
in the last resort deprive a country of its independence by setting
aside an Act purporting to revoke membership of the EU?
Given the reliance of English courts on precedent, the concern of some
British libertarians is that the ECJ
might one day successfully rule that Parliament's authority had so ebbed
away as to have become irreversibly subordinate to that of the EU.
Even a written constitution may no longer afford member states a guarantee
of independence, since the 1997 Treaty
of Amsterdam appears to have set Community
law above national constitutions.

European Currency Unit

European Defence Community
(EDC)

The EDC was the first
major failure of the federal cause in Europe.
By 1950 the Cold War was under way and the Korean War had just broken
out. The UK and the USA
wanted German rearmament, while the six
members of the soon-to-be-created European
Coal and Steel Community (ECSC),
spiritually led by Jean Monnet,
wanted a European army with mixed nationality units, as a prelude to
a wider economic and political unity. The project fell apart in 1954
when the French assembly, to the strains of the 'Marseillaise', rejected
the EDC Treaty, which
had been in abeyance since its signature in 1952. The effects of the
collapse of the EDC
were rapid and far-reaching. In 1954 Germany
joined NATO
and in 1955 Monnet retired from
the presidency of the ECSC
to devote himself to lobbying for a United
States of Europe, playing an influential role in the events which
led up to the Treaty of Rome in 1957.
It would not be until the late 1990s that military independence would
reappear on the European agenda. (See also WEU.)

European Economic Interest
Grouping

In the absence of a European company
law, companies co-operate across European borders either under national
law or within the loose framework of a 'European
Economic Interest Grouping'. The best-known example is Airbus
Industrie, a French, British, German and Spanish collaborative venture.
A major weakness in the structure is the lack of a central decision-making
body or a unified set of financial accounts.

European flag

Originally the flag of the Council
of Europe, the symbol of 12 gold stars on a blue background was
adopted by the Commission
in 1985 and is widely used as a means of promoting the European
identity. Although there happened to be 12 member states at the
time, the significance of the number lies elsewhere and is embedded
in European Christian civilisation - thus the Virgin Mary's halo is
traditionally a circle of 12 gold stars; and there are 12 signs of the
zodiac, 12 apostles and 12 months in the Western year.

European Free Trade Association

The 'European idea'

The 'European idea' is evocative,
suggesting both a certain view of history and a manifest European destiny.
It is invariably presented in terms of progress towards an end, yet
the destination is either unknown or contested. Unlike the USA,
the EU has never openly debated
its fundamental differences and resolved them into an agreed constitution,
with universally accepted aims and democratic checks and balances. Its
guiding principle, laid out in the Treaty
of Rome, is 'ever closer union between the peoples of Europe'
- but the words are capable of many meanings.

Some of the mainsprings of Europeanism are cultural, even imperial.
Others are more characteristic of a commercial trading league. It acknowledges
its ancient origins in the empires of Rome, Charlemagne
and Napoleon, which left their mark in common elements of law, language,
architecture and Christianity. But this self-image ignores many inconvenient
facts. The Roman empire was both more southern and more eastern than
Europe's present centre of gravity: it
incorporated parts of Africa and the Middle East, left northern Europe
untouched and in its later years took Constantinople as its capital.
Spain was for centuries dominated by the
Moors and eastern Europe by the Ottomans.
Indeed, the eastern boundaries are so unclear as to make it impossible
to say where Europe ends and Asia begins.
As for Christendom, it was not especially European and was as often
a source of schism as of unity.

The Germans want the Union to stop them from falling into Nazi
ways. The French want to be cured of an inferiority complex. The Italians
want to become a nation. The Spaniards want to bury Franco ... I sometimes
think that the Common Market
should have been founded not in Rome but in Vienna, on Dr Freud's
couch. Dr Pedro Schwartz, Spanish economist, 1996

The modern view of Europe began to take
shape in the 18th and 19th centuries, which saw the Enlightenment, the
industrial revolution and a number of imaginative theoretical schemes
for resolving cross-border European disputes and encouraging trade.
In the 20th century, Germany at the height
of its military power twice drew up comprehensive blueprints for a post-war
European order. At the beginning of World War I, the proposal was for
a Mitteleuropa with Germany at its centre
- a customs union from France
to the Russian frontier, to be named the United
States of Europe. And in World War II, planners in Berlin
and in Vichy France conceived a European
Economic Area, with a single currency,
a single market and a common
external tariff.

In each of these wartime cases, the plans for integration were those
of a nation expecting conquest. A number of observers have pointed out
their similarity to the EU's present
structure: and it is true that to German militarists the word 'Europe'
was a mere cloak for domination. Yet parallel concepts were equally
in circulation among idealists and among the victims of aggression.
In the inter-war years, the ineffectiveness of the League
of Nations led many to conclude that some form of European federation
was necessary to avert another conflict - the depression of the 1930s
and the rise of fascist nationalism
giving a socialist tinge to much of their thinking (and adding considerably
to the appeal of communism).

The Western victors of World War II in Europe
combined force of arms with altruistic intentions, but faced a new danger
in the rise of Soviet power. This external threat required a military
shield, which NATO
would provide. It also required a concerted political response, to prevent
countries weakened by war from being picked off separately in a series
of communist coups. Winston Churchill's
Zurich speech in 1946 calling for Franco-German reconciliation and 'a
kind of United States of Europe'
reverberated round the world and set in train the European
Movement and the Council of Europe.
But in reality Europeanism was to evolve along very different lines
from those envisaged by Britain.

Chief among those to take up Churchill's
challenge was the French internationalist Jean Monnet,
who seized the moment to turn into practice ideas he had long been brewing.
His strategy was to move forward sector by sector, pushing integration
wherever the opportunity arose: first coal and steel, next (or so he
hoped) a European army, then agriculture and atomic energy,
later a common market and a single
currency. Each step would necessitate - and legitimise - some form
of supranational control. The machinery was perforce bureaucratic, the
overt aims limited and functional, the underlying vision vastly ambitious
- no less than the creation of a new country called Europe.

The missing element in Monnet's
grand scheme was democracy. This was deliberate. The concept of democracy
had become discredited between the wars. It had failed to deter either
dictatorships or economic collapse. In the eyes of the élites
something better was needed and the approach of Monnet
and his disciples was Platonic in its utopianism. In Plato's Republic,
the just state is directed by wise 'guardians', who secure the assent
of the people through myth-making - the 'noble lie'. In the new Europe,
the wise Commission
would be the 'guardian of the Treaties' and myth-making would play a
conscious role. It was taken as axiomatic that the member states would
rarely agree on a common cause unless the majority could impose its
will or a supranational institution (the Commission,
say, or the Court of Justice) could
overrule individual governments. True, national politicians constituted
the Council of Ministers, officially
the supreme decision-making body: but
they had no right to initiate legislation and the policy options for
their secret deliberations were drafted by the Commission.
It was a far cry from the 'High Contracting Parties' of the Treaty
on European Union to the American Constitution's simple 'we, the
people'.

Another reason to sideline democracy was that it was attached to nationhood,
which Continental idealists despaired of as little more than an instrument
of discord, dominance, or at worst war. The small Benelux
countries were natural Europeanists. In the brave new federalist world
they would have disproportionate voting rights
and their most belligerent neighbour would be tamed by supranational
control of the raw materials of war (in later years, Austria,
Finland and Ireland
would also be attracted by the prospect of escaping from the shadow
of larger neighbours). But the backing of the great powers was essential
if integration was to go beyond the planning stage, and four of these
strongly favoured European federalism:
the USA to contain Soviet expansion
(besides, it was flattering to be imitated); France
to neutralise her conqueror and win prospects of leadership undreamed
of since Napoleon; and Germany and Italy
because this was the route back to acceptance in the international community.
Spain, Portugal
and Greece would have no say until they
had shed their own authoritarian rulers: once they had achieved democracy,
they knew how fragile it could be and were happy to anchor it in a wider
Europe. 'Peace' joined 'historical inevitability'
as mythic watchwords of the emergent Community.

The Scandinavian countries, Switzerland
and Britain saw things differently. It was striking that these countries
were both more Protestant and more experienced in democracy than most
of the six founding members of the EEC.
They were not ashamed of nationhood. Britain saw NATO
as the external safeguard of peace, national democracy as the internal
safeguard. It favoured voluntary co-operation in Europe
('intergovernmentalism') rather than federalism.
But then, Britain's heart was only partially in Europe.
Its destiny was at least equally bound up in the English-speaking world.
In one of the most ironic episodes of post-war history, de
Gaulle, who had previously vetoed Britain from the
Community on the grounds that it was too Atlanticist for Gallic
tastes, took fright at the accelerating pace of European integration
and suggested privately to the British ambassador in 1969 a dramatic
change of direction - a 'Europe des patries',
in which all significant power would reside in the individual member
states, led by France, Britain, Germany
and Italy. This concept came closer to expressing
Britain's vision for Europe than any proposal
before or since, but in the event the opportunity was missed, never
to recur. It would, of course, have been violently resisted by the integrationists.

De Gaulle's relationship
to Europe's central themes was ambivalent.
He was strongly opposed to federation, yet he was jealous of the USA
and relished the idea of creating a competing European superpower -
provided that it was spiritually French. Like many of his countrymen
he was mercantilist and somewhat mistrustful of free trade. Profoundly
allergic to any infringement of French sovereignty,
he used his veto so vigorously against the Commission
that the process of European integration stalled for years even after
his death in 1970. Paradoxically, it was Margaret Thatcher,
that other fierce enemy of supranationalism, who helped to put integration
back on its feet by championing the single
market in the 1980s and so opening the way to an increase in the
role of majority voting and a corresponding reduction in the veto powers
of the member states.

As the Community grew, its hold on
the people's affections waned. Opinion
polls showed a sense of popular alienation. The turnout fell in each
successive European election. Maladministration became so endemic that
in 1999 the Commissioners were forced to resign en bloc. A mountain
of regulation accumulated. The institutional
structure of what was now the 'EU'
was comprehensible only to experts. There was an obvious need for change
if more countries were to join an already too cumbersome system, but
no consensus what that change should be. Should the small
countries still command disproportionate votes? Should the powers
of the member states be further eroded by enlarging the scope of majority
voting and allowing the EU to enter
the fields of defence and foreign policy? In short, should a further
step be taken towards building a United
States of Europe, or had the process reached its natural limit?
Clarity of vision existed at both ends of the spectrum: Britain and
the Nordic countries considered that integration had gone far enough
(as did many ordinary citizens throughout the Continent), while the
arch-federalists considered that the day of the nation state was over.
The intermediate ground was obscure, sometimes deliberately so.

The diminution of democracy by the progressive transfer of authority
from the member states to the Community
had gone largely unnoticed as long as it mainly concerned the administration
of agriculture and subsidies. But by the time that Economic
and Monetary Union was introduced in 1999 (Britain and Denmark
reserving the right to opt out), the powers of the
Community were extensive and the 'democratic
deficit' was looming larger. There were two theories how to correct
it. The role of elected politicians could be increased through the Council
of Ministers, or democracy could be strengthened in the
Community itself. The first alternative would reflect the fact that
national democracy best conveyed to ordinary people a sense of genuine
representation (especially in Britain and the Nordic countries): but
it would be a throwback to de
Gaulle and Thatcher. The
second alternative lacked a credible blueprint. The Italian Alticro
Spinelli had advocated in
the mid-1980s that the European
Parliament should be given greater influence and charged with drawing
up a European constitution. But the suggestion had been watered down
beyond recognition. There was talk of an elected Commission,
or of turning the Council into a sort of senate - everybody had an idea,
and every idea had to dovetail into the other reforms needed to accommodate
the EU's enlargement.
In the absence of any core of agreed principles, 'peace', 'inevitability'
and 'ever closer union' were far too vague to serve as a guiding star.

The European idea, then, turns
out to be elusive. Apologists put this down to the uniqueness of the
EU's mission, which they describe
as an unfinished experiment. Critics argue that it is fundamentally
self-contradictory that the EU
should comprise 15 democracies (soon to be 25 or more) without itself
being democratic, and that any attempted remedy must fail, since there
could be no true sense of identity between governed and government in
a Community of 500 million citizens, with over 20 languages
and a like number of ancient cultures rooted in Latin, Germanic, Anglo-Saxon,
Nordic, Slavic, Islamic or other traditions.

As long as memories of the war were fresh, Europe's
mission had seemed clear. A tight-knit Community of six countries faced
a common threat in the Soviet Union and was given the elixir of rapidly
rising prosperity through the elimination of internal tariff barriers.
By the millennium, however, all these unifying features had evaporated.
The desire for a new purpose was revealed in cliché - Europe
was an 'economic giant but a political pygmy', which 'must assert itself
on the international stage'. Such rhetoric papered over the uncomfortable
truth that the would-be common European foreign policy could not succeed
in the absence of shared attitudes to NATO
and to problem areas like the Middle East and the Balkans:
and that it takes more than a majority vote in the Council
of Ministers to inspire a soldier to face battle.

As this book goes to press, the supranational vision of Monnet
and Jacques Delors is still in
the ascendancy, underpinned by the supremacy of Community
law over national laws and by the doctrine of the acquis
communautaire, which ratchets up integration by locking in all previous
centralising measures. But it is not evident that this process can continue
indefinitely without the full-hearted support of the people. Moreover,
there are new agents of change at work. Some of the zealots, such as
Helmut Kohl and Delors,
have departed the scene, to be succeeded by pragmatists such as Tony
Blair and Gerhard Schroder.
Enlargement will weaken any remaining
sense of homogeneity; and the 'information
revolution' is making regional trading blocs obsolete.

In its years of creation, the European
idea commanded passion and conviction. Today the machine is operational
but the mood outside the inner circle seldom rises above resigned acquiescence.
Perhaps this is the natural consequence of maturity. Or perhaps Europe
has outgrown itself, losing its soul in the process and acquiring too
much diversity to be reconciled within a single philosophy. Either way,
a defining constitutional congress was beginning to appear overdue,
in which the demarcation lines and competing claims of national independence
and federal centralism would finally be brought to a conclusion. (See
also Preface and Founding Fathers.)

European identity

The European identity as a political
goal had been inherent from the early post-war years in the thinking
of Jean Monnet, Walter Hallstein
and others. It was first set out formally at a summit meeting of heads
of government in 1973, shortly after the UK's
accession. It envisaged a Union open
to other European countries, with a common
market, common institutions and a common policy in relation to third
countries. It thus contained many of the central themes later enshrined
in the Single European Act
of 1986, the Maastricht Treaty
of 1992 and the 1997 Treaty of Amsterdam.
The phrase sometimes contains a faintly imperialistic tone, as in the
Maastricht Treaty's objective
that the EU should 'assert its
identity on the international scene'.

European Investment Bank (EIB)

With its headquarters in Luxembourg,
the EIB was established
in 1958 under the Treaty of Rome
as the Community's long-term lending
arm. Often operating alongside the structural
funds, or in partnership with other official lenders or the private
sector, the EIB focuses
on cross-border projects and on capital investments in less prosperous
regions, especially in the fields of communications, the environment,
energy and the encouragement of SMEs. Of
its annual loan programme of some 630 billion, a little less than 90%
is within the EU, the balance going
to Eastern Europe, the Arab Mediterranean
states and the African, Caribbean and Pacific countries participating
in the Lomé Convention. The
EIB operates on slim
margins, its low lending rates reflecting its own ability to borrow
on fine terms owing to its AAA credit rating. The Bank's capital was
increased in 1999 to 6100 billion, of which 6% is paid up; the uncalled
capital represents a claim on the shareholders (the EU's
15 member states) and is the foundation of the EIB's
standing as a borrower. The Bank's total loans and guarantees, most
of which are in the last resort guaranteed by the
Communitybudget, are limited by statute
to a ceiling of 25% of its capital. Since the launch of the single
currency, the Bank has actively promoted its use in financial markets
by borrowing in euro-denominated instruments.

After the murky waters of the Community's
accounts, the clean audit and transparent presentation of the EIB's
numbers and activities come as a relief. The ultimate authority in the
Bank rests with the Board of Governors, which consists of one minister
(normally the finance minister) from each shareholder. A 25-strong Board
of Directors takes lending and borrowing decisions and a professional
Management Committee (the bank's president and seven vice-presidents)
runs the organisation operationally.

European law

'European model'

The 'European model of society'
is largely a fiction, since there is no homogeneous pattern of social
organisation within the EU. The
concept, strongly promoted by former Commission
president Jacques Delors and
still well regarded in modern France, is
of a 'just society', in which the unbridled 'jungle capitalism' of the
USA (and to a lesser extent the
UK) is not altogether rejected but
is tempered by interventionist social
policy and redistribution of wealth. Free market thinkers, pointing
to the USA's success in creating
jobs and growth, regard the European
model less as the solution than as the cause of economic dysfunction.

European Monetary Institute
(EMI)

Established in Frankfurt in 1994, the EMI
was designed under the Maastricht
Treaty to be the precursor to the European
Central Bank (ECB).
It was charged with managing the European
Monetary System, co-ordinating monetary policy among member states
and preparing for the single currency.
Its ruling Council consisted of the governors of the central banks of
all the EU member states. In 1998
it was replaced by the ECB
in the run-up to the launch of the euro on 1 January 1999.

European Monetary System (EMS)

After the collapse of previous attempts at currency union in Europe,
Roy Jenkins launched the EMS
in his first year as president of the Commission
in 1977. It came into force in 1979, accompanied by the customary fanfare
of forecasts of lasting growth with stability, a progressive return
to full employment and other desirable
objectives. The two components of the EMS
were the ECU (the embryonic
single currency) and the Exchange
Rate Mechanism (ERM),
a revised system of fixed but adjustable exchange rates. All the EU
member states participated in the EMS
and the ECU, but membership
of the ERM was neither
mandatory nor universal. The launch of the euro in 1999 rendered the
EMS obsolete, replacing
both the ECU and the ERM
with a regime of irrevocably fixed exchange rates, leading by 2002 to
the issue of euro notes and coin and the abolition of national currencies.
(See also EMU and Exchange
Rate Mechanism.)

European Parliament (EP)

The European Parliament's
intended purpose is to supply some democratic legitimacy to the proceedings
of the EU, against a background
of the progressive transfer of powers from national elected governments
to Brussels. In this it is, however, hampered by its poor credibility.

The EP's ineffectiveness
arises from many causes. Its headquarters are in Strasbourg, but it
also meets in Brussels, while its library and two-thirds of its staff
are in Luxembourg (squabbles over its
location persisted for 40 years and the resultant unworkable compromise
was the product of horse-trading). With its expensive buildings (over
$1 billion in Brussels, $500 million in Strasbourg) and its caravanserai
of translators and documents, it is an immensely costly operation. It
is also hard to understand. Even to well-informed observers, the party
lists and voting systems of elections in other EU
countries are unfamiliar, as are the political
groups in the Parliament, with their obscure initials (PES, EPP,
ELDR, UEL, EDA and so forth) and their lack of party discipline or coherent
political platforms. With an average of 600,000 EU
citizens per MEP, there is little sense of
meaningful representation. European elections in most countries are
consequently decided on domestic issues. The turnout, despite compulsory
voting in Belgium, Greece
and Luxembourg (and near compulsory
voting in Italy), is low and has fallen at
every election.

The reasons for voter apathy are not far to seek. The EP
has no power to initiate legislation. Consequently, there are no opposition
parties and the proceedings are tame. Votes are taken at fixed times
and there is no record of how individual MEPs voted unless a vote is
taken, as occasionally happens, by electronic means. The subject-matter
consists mainly of committee reports, presented by rapporteurs, or the
receipt of statements from the Commission
or the Council of Ministers.
The debates are dominated by unelected commissioners and by the Parliament's
political groups, which have precedence
in the nomination of speakers. Absenteeism is so rife that the president
often lets voting carry on without a quorum (even on the crucial Maastricht
Treaty debate, nearly 40% of the MEPs failed to attend). The extravagance
of the MEPs is a byword. With travel expenses, attendance pay and office
allowances, they can add considerably to their basic salary.

The Parliament started as the ECSC's
Assembly in 1951, its members being nominated from sitting national
parliamentarians. Its first direct elections (for five-year terms) were
held in 1979. For a while, under the leadership of Altiero Spinelli,
the EP attempted to build
on its new elective status to assert itself, drafting a federalising
treaty that would have diminished the role of national governments,
rejecting the Communitybudget
and inviting heads of state to address it. Finding, however, that scant
attention was paid to its Opinions and the deliberations of its numerous
committees, it lowered its sights. More recently, it has started to
recover its confidence,. Its powers have steadily grown in number and
are no longer as token as they once were. It has the right to be informed
about international negotiations and to be consulted on legislation
and on key appointments. The Single
European Act of 1986 gave it the power to block the accession
of a new state and to amend or defer legislative proposals. Its main
weapon is co-decision, brought in by
the Maastricht Treaty in 1992,
the effect of which is to put the Parliament almost on a par with the
Council of Ministers in agreeing
legislation in selected areas. This right was extended by the 1997 Treaty
of Amsterdam to 27 new fields, including employment
and social policy, so that it now
covers most of the single market.
By contrast, the EP has virtually
no say in the Common Agricultural Policy, competition
policy, EMU or foreign and
security policy.

MEPs may ask questions of the Commission
and the Council; they may sue either of these institutions for failure
to act, receive petitions from citizens and set up committees of
inquiry into maladministration. The EP's
most draconian power is to sack the entire Commission
by a censure motion carried by a two-thirds
majority, though since the Commission
serves in practice as the Parliament's government this was long considered
only a theoretical right. The Parliament also has certain limited financial
powers, of which the most significant is its right to reject the budget.
Since, however, it is excluded from revenue-raising and so-called 'compulsory
expenditure' (that is, the bulk of the budget),
this amounts in reality to little more than the right to delay and to
seek some redistribution of planned spending.

Although the Parliament's ambitions are limited by the fact that it
has to compete for authority with the Commission,
the Council of Ministers and
national governments, the fact that it has gained ground despite its
shortcomings reflects Europe-wide concern
at the 'democratic deficit'.
Italy and Germany
see in it the best hope of an eventual federal democracy. The UK,
often in agreement with France, generally
opposes any wide extension of its powers, seeing democratic legitimacy
as stemming from national elections in which issues are put to the people
in their own language by politicians known to them. Nevertheless, the
probability is that the Parliament will continue inching its way forward,
without achieving the radical breakthrough that could only come from
a complete overhaul of the EU's
institutional structure. (See Appendix 3.)

European passport

The so-called European passport,
with its European Community
heading and its burgundy-coloured cover, is actually a national passport
in a common form. It was introduced in 1985, after lengthy arguments
about its design and content, and is meant to reinforce the European
identity by symbolising citizenship
of the Union.

European Patent Convention

A convention allowing inventors to
obtain patent protection in 18 European countries by filing a single
application, processed by the European Patent Office in Munich.

European Social Fund (ESF)

European social model

European Space Agency (ESA)

Based in Paris, the ESA
is not an EU body although it co-operates
closely with the Commission.
It is financed by its 15 European sponsoring states, including Switzerland,
supplemented by commercial revenue from satellites launched by Ariane.

European System of Central
Banks (ESCB)

The ESCB, nicknamed
the Eurofed by analogy with the US Federal Reserve system, consists
of the European Central Bank
(ECB) and the national central
banks of the EU member states participating
in the single currency. Each national
central bank supplies a member of the ECB's
Governing Council. Collectively, they use their knowledge of markets
and their links with traders to advise the ECB
and to execute its monetary and foreign exchange policy. They also make
available to it by way of reserves up to 650 billion in gold and foreign
exchange (the UK is exempted from
this obligation through its opt-out from
Stage Three of EMU).
In case of need, all the reserves of the single
currency participants are callable by the ECB
through the ESCB network.

European University Institute

Founded in Florence in 1976, the Institute offers postgraduate courses
in history and civilisation, economics, law and political and social
sciences. The EC's archives are kept at the Institute, which is financed
by the EU's member states.

Europhile

A convinced supporter of the objectives and methods of the European
Union.

Europhobe

One who distrusts all the objectives and methods of the European
Union, perhaps from xenophobic motives. Also used by Europhiles
as a term of disparagement for Eurosceptics.

Europol

Europol, the EU's
embryonic FBI, was foreshadowed in the 1992 Maastricht
Treaty, which provided for police co-operation between member states
to combat terrorism, drug trafficking and other international crime.
The EuropolConvention
was not, however, agreed until 1995 and by 2000 only a few member states
had signed it. Pending wider ratification,
Europol's activities are limited to exchanges
of information and a certain amount
of investigation through a staff of national police officers attached
to its office in The Hague. Although the 1997 Treaty
of Amsterdam attempted to promote Europol
by bringing certain police work under the sway of the EU,
home affairs remain for the time being mostly in the intergovernmental
domain. France has not been alone in raising
the alarm over the prospect of ceding control of its national police
force, which appeared to be the logical outcome of former Chancellor
Helmut Kohl's vision of Europol
as 'central to the development of the
EU's security policy'. In the UK,
the focus of anxiety has been on keeping away from the jurisdiction
of the European Court of
Justice and on the protection of the citizen against summary arrest
and detention, an area where the country enjoys a tradition of civil
liberty not universally reflected elsewhere. Against the background
of these concerns, Europol's development
has so far been slow and tortuous. (See also Corpus
Juris.)

Eurosceptic

One who casts an inquiring, sceptical eye on the project of European
integration and especially on EMU.
Eurosceptics sometimes describe themselves as Eurorealists, to escape
the false charge of Europhobia.

Eurosclerosis

Hardening of Europe's economic arteries.
A term used to denote stagnation arising from rigid labour laws, high
social costs, heavy taxation and over-regulation.

Eurostat

The Commission's
statistics office, with responsibility for compiling the figures (often
neither comparable nor reliable) supplied by member states.

Eurotunnel

The rail tunnel linking the UK
to France, jointly owned by twinned French
and British companies, whose debt finally escalated to £8.5 billion,
obliterating shareholders' equity but not preventing the completion
of a project first started by Napoleon.

Euro-X

The committee of finance ministers of countries adopting the single
currency (X stands for the number of participants - eleven in 2000).
In 1998 Euro-X fell into controversy before
it came into being. France wanted it to
act as a counterweight to the European
Central Bank, a concept opposed by Germany,
and the UK unsuccessfully demanded
a seat on it, fearing that it might usurp the role of Ecofin.
By 2000 the French view was prevailing and the committee was being promoted
as 'the economic government of Europe'.

Eurozone

Those EU member states which have
adopted the euro as their currency. Otherwise known as euroland.

Excessive deficit

The 'convergence' criteria established by the 1992 Maastricht
Treaty limited member states to an annual excess of government expenditure
over revenue of 3% of GDP and a cumulative government debt of 60% of
GDP. In evaluating a country's performance, the Council
of Ministers can make special allowance for a severe recession and
can take into account trends as well as absolute figures - a necessary
concession, given that Italy and Belgium
both have government indebtedness of over 120% of GDP. All member states
are required to conform to the limits, but those which participate in
the single currency are also bound
by the Stability and Growth
Pact, which imposes sanctions and fines on countries with excessive
deficits or debts. (See also Stability
and Growth Pact.)

Exchange Rate Mechanism (ERM)

The ERM was the central
feature of the European Monetary
System (EMS), the
two terms soon becoming almost interchangeable in common usage. It was
introduced in 1979 at the initiative of the Commission
president, Roy Jenkins, as a renewed
attempt to create a zone of currency stability in Europe
- long seen by integrationists not only as an end in itself, but also
as a step towards ultimate political unification. Two previous attempts
(the 'Snake' and the 'Snake in the Tunnel') had ended in failure, but
the collapse of the dollar-based Bretton
Woods system in the early 1970s had left many Europeans with the
conviction that the EC should take its monetary destiny into its own
hands.

The original participants in the ERM
were the Benelux currencies, the French
franc, the D-Mark, the guilder, the lira, the Danish krone and the Irish
pound. Of the then member states of the EC, the UK
alone did not initially participate; nor did Greece
when it joined the Community in 1981.
The Spanish peseta entered the ERM
in 1989 and the Portuguese escudo in 1992, respectively three and six
years after the accession of Spain
and Portugal. The pound sterling finally
joined the ERM in October
1990, after nearly a decade of political controversy in which Prime
Minister Margaret Thatcher
became isolated from some of her senior cabinet
colleagues, who considered that the UK's
detachment was lessening its influence in the
Community.

The mechanics of the ERM
provided that the participating currencies were given a central exchange
rate against the ECU, from
which they derived central cross-rates against each other. Each currency
was allowed a limited degree of deviation from these rates. If a currency
threatened to approach its upper or lower limit, central banks would
intervene and corrective domestic measures would be taken, such as the
adjustment of interest rates. But if a fundamental imbalance emerged
in a currency's parity, a realignment could be negotiated through Ecofin.
The permitted fluctuation was not identical for each currency. The majority
(many of them natural members of the D-Mark bloc) were given a narrow
band margin of 2.25% on either side of their central rates, whereas
the peseta, the pound and the escudo were allowed a broad band of 6%.
The purpose of the wider margin for these currencies was to provide
more flexibility and so to deter speculation.

The UK's entry to the ERM
came at a particularly unfortunate time. The country was in a recession,
which called for an accommodating domestic monetary stance; but the
Bundesbank, having been commanded to
supply D-Marks on an inflated one-for-one basis in exchange for Ostmarks
so as to ease German reunification, was compensating with a tight monetary
policy. To stay within its ERM
band, the UK had to raise interest
rates, thereby deepening its recession.
There was no easy escape through realignment. The Commission
president, Jacques Delors, was
preparing the ground for the Maastricht
Treaty and full-blown economic
and monetary union. As a result the ERM
was changing in character from a fixed but flexible system into a rigid
straitjacket.

In September 1992 massive currency speculation broke apart the ERM.
The peseta was devalued by 5% and the pound sterling and the lira were
both driven out of the system. There was, at the time, widespread recrimination.
Thatcher had been ousted.
Her successor, John Major, had made
membership of the ERM
a central plank of his economic policy and blamed Germany
for failing to support the pound as wholeheartedly as the French franc.
A well-known Wall Street investor, George Soros, admitted to having
made a killing by short-selling sterling, which Germany
considered to have entered the ERM
at too high a parity. It was in any event clear that the rejection of
the Maastricht Treaty by Denmark
in June, combined with the possibility that France
also would vote against the Treaty in its impending referendum,
had given the market objective reasons to be alarmed about the durability
of the ERM.

Renewed speculation in August 1993 concentrated on the French franc
and led to the fluctuation band being increased to 15% for all the remaining
currencies within the ERM
except the D-Mark and the guilder, which kept their narrow bilateral
link. For the time being, it seemed that the ERM
had gone the way of the Community's
previous failed efforts to achieve stability. Gradually, however, equilibrium
was restored. As the belief grew that EMU
would go ahead in 1999, speculators became nervous that they might get
their fingers burned if they launched unsuccessful forays in the exchange
markets. Italy returned to the ERM
in 1996, Finland, Austria
and Greece (but not Sweden)
also joined and all the participating currencies except that of Greece
came back unofficially to the narrow band. Sterling stayed outside,
but confounded the pundits. The Europhiles had predicted that its expulsion
would lead to a sharp depreciation (or competitive devaluation, as some
in France bizarrely termed the pound's unwilling
fall), together with higher interest rates and a prolongation of the
UK's recession. In the event, British
interest rates declined, the economy recovered and by 1998 the pound
had climbed back above the level which had once been regarded as unrealistically
high.

The Maastricht Treaty had specified
observance of the 'normal fluctuation margins' within the ERM
for at least two years as one of the convergence
criteria upon which qualification for the single
currency would be judged. For the countries that wished to adopt
the euro, a few years of calm had seen to it that this clause no longer
posed a problem and on 1 January 1999 the single
currency was launched with all the applicants (except Greece)
participating. At that point, the original ERM
ceased to exist and was replaced by a new version, often known as 'ERM
2'.

Exchange Rate Mechanism 2 (ERM2)

Participants in ERM2 are allowed a fluctuation margin of 15% either
side of the euro, or a lesser margin if mutually agreed. Member states
of the EU which are not in the
single currency zone are not formally
obliged to participate in the new ERM
but are 'expected' to do so and perhaps (though the point is not clear)
required to do so as a precondition of adopting the euro. Every member
state is in any event bound to treat the stability of its own exchange
rate as a matter of 'common interest' under the Treaty
of Rome. The UK's position is
anomalous. It has said that it intends 'in principle' to adopt the euro,
but it has not joined ERM2. Denmark, which
is subjecting participation in the single
currency to a referendum, is in
ERM2, as is Greece. Sweden,
however, remains outside. (See also EMU.)